Friday, June 01, 2012

Electricity too cheap to meter

Molly Ivins once observed that the GOP was doing to Texas what it wants to do to the country, so the rest of the nation might want to pay attention to this story.

It seems that, about 10 years ago, Texas deregulated its electricity market, in order to lower prices; but prices have only gone up.  However, prices have apparently not gone high enough to inspire electricity providers to build more power plants.  No, all deregulation has done is drive several retail providers of electricity out of business:

The higher caps expand the range of fluctuation for prices. That means retailers — the companies that sell you electricity — must spend more to hedge against price swings. The more they hedge, the more it squeezes their already razor-thin profit margins. In 2008, five retailers shut down because of price volatility. This summer, more could be forced out of business or forced to break their fixed-price contracts with consumers.
The proposed solution to that problem is to allow providers to break those fixed-price contracts.  Screw 'em, right?

And then there's the idea that, to avoid blackouts this summer, Texans simply must pay more for electricity.  A whole lot more:

 The current cap has been tripled in recent years and is now the highest in the nation at $3,000 per megawatt/hour (during normal times, the price per megawatt/hour can be $50 or less). The commissioners are considering raising the cap to $4,500 this summer and to $9,000 by 2015.
According to the Texas PUC chair (the state regulatory agency), the problem is the price is too low:

“What we’re trying to fix is, the prices in the wholesale market are not high enough to attract investment."
If that sounds a lot like saying the problem with the national economy is the banks and Wall Street don't yet have enough money; that's because it is.  As another PUC commissioner said in response to the chair's assertion:

 “You’re carting away money, not in wheelbarrows, but in Mack trucks.”
But, of course, without Mack trucks full of money, how can we expect electricity providers to build more power plants?  And if we triple the rates they can charge during a crisis, why, what could go wrong?  I mean, it's not like they'd just keep the money and find other excuses not to build, is it?

This is about to come to reality, thanks to a consultant's report that says, yep, that's the way the world works:

The Brattle Group report to the Electric Reliability Council of Texas (ERCOT) recommends tripling the maximum wholesale price “from the current $3,000 to $9000…but impose this price cap only in extreme scarcity events,” said the report.

Those figures are in keeping with what the PUC has proposed and which the commission’s chairman wants to start phasing in this summer.

But the Brattle Group report had a warning:

“…we urge caution about implementing major changes too quickly or without sufficient analytical support or stakeholder consideration. Complex market design changes will likely take more than a year to implement, and market participants need to be allowed ample time to prepare for the implementation of any changes.”
 That "warning" is the key, of course.  It means this should be done slowly and carefully; but not to worry, the Texas PUC is here to protect....investors.

PUC Chairman Donna Nelson said in a statement issued through ERCOT:

“The Brattle Group’s report confirms that we are moving in the right direction.  I look forward to reviewing the report fully and discussing next steps with my fellow Commissioners in the coming months.”
 The fix, in other words, is in.  Tell Grandma to get away from that thermostat, and go open another window.  It's about to get a lot hotter around here.

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